The year comes to a close tomorrow -- which gives you two days of business to knock a few last minute dollars off your income tax bill for 2003. Yes, I know your filing deadline is three-and-a-half long months from now. But only if you give the matter some thought today (or tomorrow) can you be sure you'll be writing Uncle Sam as small a check as absolutely possible.
With only a couple of days left is there really anything you can do?
Absolutely. Hundreds of millions of dollars in deductions and tax credits -- more than $600 a head -- slipped by last year because taxpayers didn't do the relatively simple things necessary to take advantage of them. Because it's so close to the end of the year, there are a couple of strategies -- delaying income, maxing out your 401(k) -- that unless you work for yourself, it's probably too late for. But there are things you still CAN do. This morning, we'll talk about the simplest of the simple, only the things you really can do before year end.
Give to charityWhether you're clearing the old clothes out of your closet and hauling them to the Salvation Army or writing a check to the local food pantry, doing it before the end of the year will allow you to take the deduction on this year's taxes. This year, you may want to think about giving appreciated stock. If you sold the stock, you'd have to pay taxes on the gains which would leave you with less to donate to your charity. But by giving the stock itself, you can deduct its full value, the charity can sell it and it doesn't have to pay taxes.
If you decide you want to give cash, you need to write your check - AND MAIL IT - before the end of the year. As always, you need a receipt for any gift valued at more than $250, and it has to be dated in the year 2003.
If you want to give but don't have the cash at hand, you can always put the contribution on your credit card. It's deducted in the year in which you make the contribution, as opposed to the year you have to repay it.
Sell losing stocks to offset gains
It's been a good year in the market, no question. If you're sitting on a pile of capital gains, you may want to consider unloading losing investments -- ones you don't anticipate will rebound, or no longer want to own - in order to offset those gains. You can use those losses this year to offset any realized investment gains as well as up to $3,000 of other income. If you have losses greater than that, you can carry them forward for use in future years. One note: If you sell an investment you believe will go back up in order to take the loss, you can't buy it back for 30 days. But - in the case of a mutual fund, for example - you can buy something similar to maintain your position. (One thing not to do with stocks that are down since you bought them: Donate them to charity. You won't be able to claim the loss on your tax return. Instead, sell the stock yourself and donate the money. Then you can write off the loss and the charitable donation.)
Beef up deductions
One of the keys to year end tax maneuvering -- this, by the way is only for people who itemize -- is to force some deductible 2003 expenses into this calendar year. This makes the most sense for people who expect that their income will be higher this year than next because if your tax bracket goes down this year's deductions will be worth more, but it also makes sense if you just want to see those deductions sooner. What can you do? You can make your January mortgage payment this month, in some cases you may be able to pay real estate taxes as well, and if you pay estimated quarterly taxes, make your January 15th payment before the year closes as well.
Put away money for your kidsIf you're planning on making contributions to college savings accounts for your children -- either 529 plans or Coverdell Education Savings Accounts -- those must be completed by end of the year. And if you're planning on giving the $11,000 allowed to your children (free of gift or estate taxes you can give that money to anyone you want) that also has to be done by year end.
Open a Keogh
If you're self-employed, you have a number of choices for putting pre-tax money away. A Keogh is the one that allows you to contribute the most -- up to $40,000. But although the account doesn't have to be funded until you do you're your taxes, you have to establish the account by year end.
Spend flexible spending dollars
If you put money into a flexible spending account for 2003 and have yet to use it up, it's time. It's probably a little late to get in the door for an unreimbursed check up. But you can buy new glasses, stock-up on contact lenses, and to stock up on over-the-counter medications to get you through this year's cold and flu season.
Finally, get to work on those taxes. One good piece of news to come out of Washington in recent months is that tax refunds are expected to be substantially larger this year. That's motivation to get to work filing those taxes as soon as your 1099s roll in. Then you can put that refund to work for you as soon as possible -- perhaps by depositing it in an IRA or paying off some of that holiday credit card debt.
Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Information provided courtesy of Jean Chatzky and Money magazine. Copyright © 2003. All rights reserved. For more financial advice, visit the Money magazine Web site at: